Intraday trading can be exciting for investors. The prospect of daily profits, complete control over execution strategy and did we mention daily profits? Intraday trading, however, requires expert knowledge of the share markets and expertise in trading strategies. If you're beginning to trade in stocks, we recommend a few things you should know about intraday trading.
How does intraday trading work?
In intraday trading, you buy and sell stocks and other financial instruments on the same day. At the end of the day, all positions are squared-off. You don’t own any shares in your buying trade, as the system automatically calls it a day at your holding position before the market closes.
Retail investors typically buy shares and hold them for a longer period of time - this is regular stock market investing or delivery trading. The shares bought through this approach are delivered to your Demat account and you own the whole ownership of the same. Versus intraday trading, where the buying and selling happen within minutes and hours.
Intraday trading leverages the moving stock indices (varied prices. The profits earned are immediate and based on how well a particular stock is performing. As a result, the trader doesn’t own any shares.
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Are you ready for intraday trading?
Intraday trading is profit-driven as compared to regular trading, which is investment-driven with an expectation of higher profit margins in the long term. Thus, intraday trading requires the trader to be involved through the market operation hours, monitoring the movement of stock prices. This is known as day-trading, where trading on the stock market becomes a full-time profession.
When to consider becoming an intraday trader?
Consider intraday trading if:
- You have enough time to analyze the stock market throughout the day and buy and sell on the go.
- You have a sound technical analysis background, understand charts and trends, and have an astute sense of timing trades.
- You have a decent risk appetite. You must be willing to take losses and wins equally in your stride as markets are volatile, responding quickly to the smallest global event.
Basic Things to know about Intraday trading
Intraday trading becomes easy and hassle-free when you trade with an online platform that offers you a seamless experience such as Sharepa Online Discount Broker.. An all-in-one trading platform, Sharepa lets you do more with one trading account and supports your trading with customer service.
Choose your broker and brokerage wisely.
This is one of the most basic and crucial places to begin with - a good brokerage platform. The trading platform should be accessible, intelligent, and technologically robust. Beginners trade with lower volumes, so the brokerage fee seems minimal. However, as the volume of trading increases, the fees may look steep. Fix a plan in advance with your broker if you plan to trade in high volumes.
Also read, 6 Things to Consider Before Choosing a Stock Broker in India
Start small, and build big
As quickly as you earn profits in intraday trading, you could also lose money on trades fast. It's best to start with smaller amounts to day trade, learn the movement of the market, and grow through the experience.
Trading in stocks
It's almost impossible to keep track of every stock in the market. Day traders choose their stocks and securities well, trading in chosen sectors alone. Often traders look at whether the stocks can be easily liquidated and whether the stock has sizable price movement. You also need to be well-versed with global financial markets, and macroeconomic factors and identify which stocks are trending.
Technical Analysis and Research
Tips and stocks are abundant in the market. With intraday trading, you cannot afford to rely on these. Historical trends, charts, technical studies, and reports are crucial to creating successful intraday trading strategies.
Risks and Rewards
Analyzing the risk-reward ratio is one of the fundamentals of intraday trading. Understanding the risk-return trade-off and setting the ratio helps minimize the risk of day trading.
Active day traders benefit from the leverage facility with the brokers. It's a mechanism that allows traders to take higher positions without paying the whole price for the stock. Leverage too, however, requires a well-designed strategy to ensure borrowing remains within limits.
Defining Stop Loss order
Minimize losses in intraday trading with defined stop-loss orders. This is an order that indicates buying or selling the stock once it reaches a certain price.
Intraday Trading indicators
A basic and essential set of tools that helps traders identify the movement, trends, and duration of what stocks to buy, hold or sell.
- Moving average calculates the price of a stock over a set period of time. Thus, weeding out the short-term fluctuations of the stock movement offers traders a holistic view of the stock trades over time.
- Bollinger bands are an upgrade on the moving averages indicator. It takes into account 3 lines - the moving average, an upper limit, and a lower limit. Thus, offering a deeper analysis of the stock’s trading scope.
- Momentum Oscillators help traders understand the stock prices deviation from the typical bullish or bear market trends. The movement of stock is analyzed on a scale of 0 to 100. Thus, giving traders an ability to understand the stock price’s new high or low and predict its future movement.
These are a few basics that you should know about intraday trading.
The rules of investing, however, continue to follow.
- Research the companies, study trends, and follow the news to know which stock is behaving or performing in a certain manner.
- Limit your losses and keep a check on your risk appetite. The profits come fast and may get exciting, but the losses can hit hard.
- Trade only when the markets are predictable. This is especially true for intraday trading.
- Choose a reliable trading partner and brokerage house with strong technology and sound fundamentals to ensure seamless transactions.
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